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Month: May 2016

I haven’t updated my blog for a while as I’ve been traveling and picking out all sorts of stuff for the house construction project (tiles, cabinetry, appliances etc) If I wasn’t in a design meeting (while preoccupied with my trades w/ phone in hand), I was enjoying the company of friends and ending up extremely exhausted by end of day and just didn’t have the time for an update. Suffice to say, the week went well and we ended up with some nice theta gain despite the wild movements. I am aiming to close the trades on Monday as we’re approaching 21 DTE and have 6-7% gains. It’ll be a wild week with I think 9 different Fed speaking and Yellen on Friday. Market is pricing in a 30% chance of a rate rise in Jun. Could be dramatic moves soon coming. I won’t be in the June trades. I’ll be entering more AUG SPX trades and starting to look at RUT AUG trades on Thursday.

Re the June trades, the P/L below may not be exactly accurate as I entered the trades but didn’t update them with the pricing I paid for any adjustments. They’d have used whatever the price was when I converted the trade in OV. I have to go back and do that. If anything, it’s probably under-stated. The day RUT fell to about 1085, my P/L was quite a bit worse off than OV would have suggested, typical when vol goes up. That shows the models aren’t as accurate as you’d think. Anyways, something to note, though, I was keeping my deltas well negative through the week.

The June trades are doing well now. We’re at about 4% on planned capital and we are 37 Days to expiry (DTE). We started off pretty rough with this expiry and I am not interested in taking too much more risk with them now that we’ve got some profit. We paid a lot at the beginning as it was low-volatility as such I have reduced profit targets. So I’ll start peeling off as the market moves through the next 14 days. Right now, they are delta negative by about -10 deltas each unit.

I have some concern for the downside as downside moves can be swift and more difficult to adjust and with potential negative news in after hours, I’d rather have a nice cushion. We just fell from 1155 to 1115 and I’ve got a lot of upside hedges on. These have to start coming off if we fall much more, else I’ll have too much exposure to the downside. Up moves are a bit easier to manage (re fills and size of moves especially after a big run up) and generally there’s less explosive positive news in after hours that could get us in trouble. Plus, we have way less upside exposure in the T+0 line. I have a bearish bias at least around May expiration (May 20) and onward. We’ve got 7-14 days left and if the market continues to fall, I’ll remove upside portions of the trade more aggressively which will remove my downside risks and expand the tent. If, for some reason, we should get whipsawed hard, I’ll then remove the downside portions all while keeping things fairly delta negative. Thus unwinding the trade while allowing theta to work for us while keeping the goals of protecting the downside. I’ll continue like this over the next few weeks, seeking out more and more theta and unraveling the trades.

I don’t have the full unit exposure on July trades as I couldn’t get fills. If things get more volatile, we might be able to get great pricing this week or next. The more volatile it is the more closer to expiry pricing acts. I.E what you pay for a BWB @ 72 DTE in a low vol market would be similarly priced 55-60 DTE in a more high volatility market.

Here’s the trades from yesterday at 2:30pm. I had a few call BWBs close on auto orders that I haven’t included here near EOD on the ramp up. Slightly exposing on the upside but given the sharp down and deteriorating technicals, I wanted to get things more delta negative though. Profits are coming back in nicely. After next week, I’ll be aiming for 7.5% to close the trade. If we make it to about 27 DTE, I’ll take 5-6%.

BPSPX indicates that the upside move is not to be believed. It’s deteriorating rapidly and suggesting more downside as are the other bullish percentages. The past 18 months I’ve tracked the BPs closely and to be honest, it’s probably now my favourite indicator. I used to loathe them because often they’d be in the opposite of my market opinion and where I needed the market to go in order for my trades to do well. So much for market neutral trades being market neutral eh, being market neutral is a myth in extended markets (up or down) when your trades get out of the zones. However, we’ve rallied into OPEX quite consistently and smart money hasn’t moved this week or gone sharply short. The DAX is at a perfect position for a bounce. Maybe we have a little downside this week towards SPX 2019 and then bounce into OPEX. I think we’re going down after that though. But that’s all just gut feeling and bias based on everything I read and follow and based on technical indicators that I use. How does it affect my trades?? Not a whole lot other than I might be more biased to take off some upside calendars and BWBs on big bounces.

I wasn’t able to really get any good fills for the remaining July trades despite the increased volatility of the week (you’d expect better prices). I did get filled well on some SPX trades earlier in the week but I haven’t bene able to get a fill anywhere near since.

I’ve closed out all my May trades. There’s none left. They were closed for a profit and I regained a lot of ground with this fall in the RUT. Had it gone to 1080 or 1090 quickly, we’d have done better but I’ll take it, we were essentially break even on the May trades to finish up and recover about 30% of our max profit.

I have no opinion on which way the market will move. We could bounce or we could continue down. I don’t have the foggiest even in terms of levels so I am keeping the trades nice and neutral. There’s a lot of negative headlines but the most furious rallies are amongst negative sentiment. The persistent shorting and subsequent buying pressure on covering can make for very intense up moves. These headlines are all old recycled headlines, nothing really new. Whoever would have sold due to those specific headlines, probably have already sold, they had their vote, a big sell-off typically requires some sort of new surprise headline to instigate other sellers to sell. All that said, man, we’re entering an interesting time politically in the US. Trump. I can’t see how things won’t get more volatile in the summer with that, the general negative seasonality and a lot of the global macro issues. All of my trades prefer volatility and down’ish moves. So I’d welcome that.

I did enter some July trades last week, I’ll update the blog with those as well. I’ve been trying to get good pricing today but I haven’t got filled. I’ll wait and try again tomorrow.

Good day on the markets. Patience and proper management is starting to pay off as all June trades are now profitable. I did add a few upside hedges for any bounce as it touched the 1118/1120 area. Wanted to get things just a bit more neutral. We are 45 DTE and we’ve got a lot of life left in these trades and a lot of theta.

The May trades will help act as a downside hedge as any move to 1050 will make those very profitable. They are in the “dip” and each day I make sure to keep them theta positive by a good amount. They have very little to no upside risk.